Ricoh 2006 Annual Report Download - page 33

consolidated statement of incom e a cumulative effect of accounting
change, net of tax, of ¥7,373 million.
( i) Inventor ies
Inventories are mainly stated at the lower of average cost or net
realizable values. Inventory costs include raw m aterials, labor and
manufacturing overheads.
( j) Property, Plant and Equipment
For the Com pany and its domestic subsidiaries, depreciation of property,
plant and equipment is computed principally by using the declining-
balance m ethod over the estim ated useful lives. Most of the foreign
subsidiaries have adopted the straight-line method for computing
depreciation, which currently accounts for approxim ately 34% of the
consolidated depreciation expense. The depreciation period generally
ranges from 5 years to 50 years for buildings and 2 years to 12 years for
machinery and equipment.
Effective rates of depreciation for the years ended March 31, 2004, 2005
and 2006 are sum marized below:
2004 2005 2006
Buildings 8.1% 8.5% 8 .9 %
Machinery and equipment 42.9 43.8 4 0 .5
Certain leased buildings, m achinery and equipment are accounted for
as capital leases in conform ity with SFAS No.13, “Accounting for
Leases.” The aggregate cost included in property, plant and equipment
and related accum ulated depreciation as of March 31, 2005 and 2006
were as follows:
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2006
Aggregate cost ¥7,051 ¥6,895 $58,932
Accum ulated depreciation 4,615 4,911 41,974
The related future minimum lease paym ents and the present value of
the net m inim um lease paym ents as of March 31, 2006 were ¥3,615
million ( $30,897 thousand) and ¥3,453 m illion ( $29,513 thousand) ,
respectively.
Ordinary maintenance and repairs are charged to expense as incurred.
Major replacements and im provem ents are capitalized. When
properties are retired or otherwise disposed of, the property and related
accum ulated depreciation accounts are relieved of the applicable
amounts, and any differences are included in earnings.
( k) Capitalized Softwar e Costs
Costs incurred for computer software developed or obtained for internal
use are capitalized and am ortized on a straight line basis over their
estimated useful lives in accordance with Statement of Position ( SOP)
98-1, “Accounting for the Costs of Com puter Software Developed or
Obtained for Internal Use.”
( l) Goodwill and Other Intangible Assets
SFAS No.141, “Business Combinations” requires the use of only the
purchase method of accounting for business com binations and refines
the definition of intangible assets acquired in a purchase business
combination. SFAS No.142, “Goodwill and Other Intangible Assets”
eliminates the am ortization of goodwill and instead requires annual
impairment testing thereof. SFAS 142 also requires acquired intangible
assets with a definite useful life to be amortized over their respective
estimated useful lives and reviewed for impairm ent in accordance with
SFAS No.144, “Accounting for the Impairm ent or Disposal of Long-
Lived Assets”. Any acquired intangible asset determined to have an
indefinite useful life is not amortized, but instead is tested annually for
impairment based on its fair value until its life would be determined to
no longer be indefinite.
Ricoh com pleted its annual assessment of the carrying value of
indefinite-lived intangible assets, including goodwill for the years ended
March 31, 2004, 2005 and 2006 and determ ined that no goodwill
impairment charge was necessary.
( m) Pension and Retir ement Allowances Plans
The measurement of pension costs and liabilities is determined in
accordance with SFAS No.87, “Employers’ Accounting for Pensions.”
Under SFAS 87, changes in the amount of either the projected benefit
obligation or plan assets resulting from actual results different from
that assum ed and from changes in assum ptions can result in gains and
losses not yet recognized in the consolidated financial statem ents.
Amortization of an unrecognized net gain or loss is included as a
component of the net periodic benefit plan cost for a year if, as of the
beginning of the year, that unrecognized net gain or loss exceeds 10
percent of the greater of ( 1) the projected benefit obligation or ( 2) the
fair value of that plan’s assets. In such case, the amount of
amortization recognized is the resulting excess divided by the average
remaining service period of active em ployees expected to receive benefits
under the plan. The expected long-term rate of return on plan assets
used for pension accounting is determ ined based on the historical long-
term rate of return on plan assets. The discount rate is determ ined
based on the rates of return of high-quality fixed-income investments
currently available and expected to be available during the period to
maturity of the pension benefits.
( n) Income Taxes
Incom e taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying am ounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable incom e in the years in which those
tem porary differences and carryforwards are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
( o) Research and Development Expenses and Adver tising
Costs
Research and development expenses and advertising costs are expensed
as incurred.
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ANNUAL REPORT 2006